The Acquisition Between Merck and Schering-Plough

On present 9, 2009, Merck & Co., Inc. and Schering-Plough Corporation announced that their Boards of Directors have unanimously approved a definitive merger agreement at a lower place which Merck and Schering-Plough impart combine, under the name Merck in a stock and cash transaction. As the two companies unite 2008 revenues were $47 billion. The deal officially closed on November 3, 2009.Background of the two partiesMerck & Co. (NYSE MRK) was initially formed in 1891 as a United States supplementary of the German chemicals and pharmaceutical company Merck KGaA. During World War I, it was accomplished as an independent company from confiscated assets. Since then, it has grown to become oneness of the top seven largest pharmaceutical and biotech companies worldwide.Schering-Plough (NYSE SGP) is one of the medium-sized players in the pharmaceutical industry, with sales of $18.5 billion in 2008. Its two largest products are autoimmune medication Remicade, change internationally, and Zetia & Vytorin, a joint venture taken with Merck that fights cholesterol. While growth of Remicade has been strong, Vytorin has taken a blast after studies questioned its efficacy compared to the older drug it is based on and in treating blockage of the heart valve.The accomplish of the acquisitionThe Merck and Schering-Plough took the typical reverse merger arrangement during the acquisition process.The Merck- Schering-Plough merger agreement contemplates a dance transaction involving Merck, Schering-Plough, and Scherings two special purpose, subsidiary holding companies, meritless, Inc. and Purple, Inc. In step one of the mergers, Blue get out merge into Schering-Plough and each share of Schering-Plough will be converted into the right to receive (i) 0.5767 shares of the survive Schering-Plough and (ii) $10.50 in cash. In step two of the merger, Purple will merge into Merck and each share of Merck will be converted into 1 share of the living(a) Schering-Plough.After t he completion of these two stairs, the live on Merck will be a wholly owned subsidiary of the surviving Schering-Plough. Yet, the shareholders of pre-merger Merck will own approximately 68% of the surviving Schering-Plough and shareholders of pre-merger Schering-Plough will own around 32% of the surviving Schering-Plough. Although Merck will become a subsidiary of Schering-Plough Mercks pre-merger shareholders will together possess a majority of the voting and economic rights (or beneficial ownership) of Mercks new parent company, Schering-Plough.One peculiarity of the Merck-Schering reverse merger transaction structure is that between steps one and two Merck finds itself in a slightly precarious situation. After the completion of step one, Scherings pre-merger shareholders will have received shares of the surviving Schering-Plough and a cash payout, but Mercks pre-merger shareholders will not yet have seized control over the management of the surviving Schering-Plough.The merger a greement has come up with a way to protect Mercks shareholders during this governance gap. Simultaneously with the completion of step one of the merger, Schering has agree that its calling card will cause all of its directors (other than 3 specified exceptions) to resign and to elect the members of pre-merger Mercks board of directors as the directors of the surviving Schering corporation. Even before pre-merger Mercks shareholders acquire their supermajority share of the beneficial ownership of the surviving Schering corporation after step two, they indirectly will have already taken the helm of the surviving Schering corporation through the election of their own directors to the new parent companys board.The motivation of the acquisitionMerck faces many of the challenges that face all pharmaceutical companies, including issues surrounding unembellished expiration and FDA approval. Patent expiration may affect 30% of sales through 2008. In addition, there is growing pressure in the US and abroad to lower the price of medication.Schering-Plough has a particularly small pipeline, with very few drugs currently in development. In the near term, it does however have one of the safest profiles in the industry, with very few major patents advance up for expiration in the coming years.The newest merger will result in a built product pipeline in areas such as cardiovascular and respiratory disease and oncology, and should eventually reward $3.5 billion annually in cost savings. Merck is also set to be hit by patent expiries of some of its top sellers in the next decade, while Schering-Plough is not.